Billions spent by bank of mum and dad show broken housing market

Many would-be first-time house buyers, like me, know how dispiritingly tough it is to save for a deposit. I imagine very few people would turn down a financial hand up, should one become available.

A new study reveals that the so-called Bank of Mum and Dad are on course to invest £6.5 billion helping their children get a foot on the UK property ladder this year – a large enough sum to be considered the nation’s ninth-largest lender.

The research from Legal & General (L&G) and economics consultancy Cebr estimates the amount exceeds the £5 billion shelled out by parents last year. The average amount made available for deposits has risen from over £17,000 last year to almost £22,000, while the average parental contribution in London is just under £30,000.

Around 2 in 5 homeowners in London (39%) receive some help from the Bank of Mum and Dad.

That so much money continues to be made available is a mark of how astonishingly well the baby boomer generation have done from Britain’s long property boom. It is also a reminder of how house prices have long soared past typical earnings, with young adults struggling to get anywhere near the sums required to match older people in the market.

It is a symptom of our broken housing market

Nigel Wilson, the chief executive of L&G, is convinced “intergenerational inequality” has become a major problem. “This is not a good thing, nor is it sustainable or equitable for our parents (the lenders) or young people (the borrowers),” he said.

“Younger people today don’t have the same opportunities that the baby-boomers had, including affordable housing, defined benefit pensions and free university education,” Wilson added. “Parents want to help their kids get on in life, and the Bank of Mum and Dad is a testament to their generosity, but it is also a symptom of our broken housing market.”

Wilson repeated the familiar call to resolve the “supply-side crisis” by building more houses. But if house prices are now so wildly detached from what people are actually earning, perhaps more radical ideas and experiments will be required.

In next week’s edition of The Big Issue, we’re looking into the work of the London Community Land Trust, which has been able to establish a ground-breaking principle at their new development at St Clements in Bow: linking house sale prices with average local earnings.

Make sure you pick up your copy (Monday May 8) to find out more on how housing costs might be linked to wages.